Faculty of Economics and Business Administration Publications Database

Portfolio similarity and asset liquidation in the insurance industry

Girardi, Giulio
Weiss Hanley, Kathleen
Nikolova, Stanislava
Sherman, Mila Getmansky
Month: 10
ISSN-Print: 0304-405X
Link External Source: Online Version
Year: 2021
Keywords: Interconnectedness; asset liquidation; similarity; financial stability; insurance companies; fire sales

We examine whether the concern of academics and regulators about the potential for insurers to sell similar assets due to the overlap in their holdings is justified. We measure this overlap using cosine similarity and find that insurers with more similar portfolios have larger subsequent common sales. When faced with a shock to their assets or liabilities, exposed insurers with greater portfolio similarity have larger common sales that impact prices. Our portfolio similarity measure can be used by regulators to predict the common selling of any institution that reports security or asset class holdings regardless of its public company status, making the measure a useful ex-ante predictor of divestment behavior in times of market stress.